House prices to keep falling for years

[Aussiejeff]

Thought I'd post this one up. Note: no "Australia" in the category of "systemic" banking crisis.

Good one Mr Gorilla.

So, based on past history, the countries listed as being "current" in the housing/banking crisis would be doing very well to get out of the do-do's within 3-4 years at best (given the 6 year average and least recovery time of 3-4 years).

"Only" a few more years to go then, if we are lucky and this "downturn" is of the "historically average" type ...

 

[numbercruncher]

I hope propery gets dumped : the quicker the better and then we can get rid of that naive turkey from reiv propping up his own intersests and begging the govt for assistance , sink you bastards sink .

Another fan of Australias underbelly realestate cartel i see

 

[Beej]

Thought I'd post this one up. Note: no "Australia" in the category of "systemic" banking crisis.

Great post! So really the key as to whether AU will follow the US/UK property market has more to do with whether we are in fact suffering a "systemic banking crisis" as they are, or not.

It would seem the answer is we are not, due to a modicum of good luck, the relative size of our banking sector in the global scheme, plus prudent regulation and government management of the sector over the past decade or two.

Some evidence of this comparing what happened in the UK vs what happened here, (info from a UK made TV show on Lifestyle channel about this the other day - "The Truth About Property")

* In the UK, mortgage interest rates continued to rise, even as official rates came down (due to credit freeze, rise in risk premium attached to housing lending). In AU mortgage rates have come down almost inline with official interest rate reductions.

* In the UK, Credit standards significantly tightened and number of mortgages/providers massively reduced. In AU this occurred to a small extent, via the demise of and reduction in market share for non bank lenders, but to nowhere the same extent as in the UK. Additionally here in AU it seems the big four have simply picked up the extra volume.

* As the UK market fell, FHB numbers also fell dramatically. In AU, through the current period of relatively small price falls, FHB numbers are increasing dramatically - boosted by government subsidy (grant boost etc), lowering interest rates, but clearly and most importantly, actual availability of credit!.

* In the UK, the default rate has risen significantly in the past 12-18 months (though nowhere near the US level!). In AU, the default rate has fallen in the past 12 months.

* In the UK there have been some serious bank failures/issues, bank runs etc (Black Rock, RBS), and talk of nationalisation of the entire sector to resolve the crisis. In AU our banks are still posting multi-billion $$ profits even as we write.

The above demonstrates why the Australian market will hold up much better than the UK (and of course the US). It really comes down to whether we are just going to have an economic downturn triggered by the global banking/financial crisis, or whether we still have our own "systemic banking crisis" in store.

IMO, all the evidence so far seems to suggest we have dodged the latter bullet, meaning our house prices are not going to crash - and as we come out the other side of the economic downturn they will continue to grow as they historically have. Although to be fair I don't think the rate of price growth will be as great as in the past 10-15 years - personally I am expecting 15-20 years before we see the next "doubling" of median prices, but with more differentiation between high growth and lower growth areas. I also expect rents/yields to move higher than the last 10-15 year average. Future inflation will be the major factor that could shift this time frame....

Cheers,

Beej

 

[Beej]

PS - an interesting little audio clip plus slide show from Ross Gittins of the SMH talking about whether now is the "right" time (or not) to lock in interest rates, or jump in (or not) if you are a FHB:

http://www.smh.com.au/interactive/2009/business/ross-gittins-mortgage-advice/index.html

He provides some pretty realistic and sensible views IMO.

Cheers,

Beej

 

[lioness]

Thought I'd post this one up. Note: no "Australia" in the category of "systemic" banking crisis.

Many thanks, this is a great chart and very good info gorilla.

I am dumping one rental property at the moment. I may just get out in time!!

 

[prawn_86]

Many thanks, this is a great chart and very good info gorilla.

I am dumping one rental property at the moment. I may just get out in time!!

Weren't you just looking at buying 5 properties? Or do i have you confused with another member?

 

[lioness]

Weren't you just looking at buying 5 properties? Or do i have you confused with another member?

Yes prawn, that is right, I admit it. I have just completed extensive research on property trend and economic links and have realised it's best to move to cash.

I have a high paying job and no debt after dumping this, but that's not the point. I don't want that debt risk any more when I will not get any capital growth for 5 years.

I intend to buy again but with 50% deposits.

 

[prawn_86]

Yes prawn, that is right, I admit it. I have just completed extensive research on property trend and economic links and have realised it's best to move to cash.

I have a high paying job and no debt after dumping this, but that's not the point. I don't want that debt risk any more when I will not get any capital growth for 5 years.

I intend to buy again but with 50% deposits.

Ok thats cool. Good to see you have done your research.

My partner and I will buy a PPOR (our first) 1. when i get a job after uni and 2. when the deposit we have saved is enough to make the property cashlow +ve if it were being rented.

 

[lioness]

Ok thats cool. Good to see you have done your research.

My partner and I will buy a PPOR (our first) 1. when i get a job after uni and 2. when the deposit we have saved is enough to make the property cashlow +ve if it were being rented.

I wouldn't rush, you will have years to get a bargain.

 

[gfresh]

* In the UK, mortgage interest rates continued to rise, even as official rates came down (due to credit freeze, rise in risk premium attached to housing lending). In AU mortgage rates have come down almost inline with official interest rate reductions.

Already our banks are severely cutting *commercial* lending significantly, to the point where the Government has had to step in. There is no real reason they would not do so for retail bar government pressure. They may be well pressuring the banks to take it easier on retail lending, but better hope they can continue doing so.

* In the UK, Credit standards significantly tightened and number of mortgages/providers massively reduced. In AU this occurred to a small extent, via the demise of and reduction in market share for non bank lenders, but to nowhere the same extent as in the UK. Additionally here in AU it seems the big four have simply picked up the extra volume.

We've lost many non-bank lenders, and so have they - moot point. Demand for non-bank lenders has fallen off a cliff, as per ABS stats posted here a while back. Well borrowers have gone for our main 4, simply as they are still borrowing, although in reduced numbers. In the UK they are in the midst of a nasty recession and plunging house prices, maybe we are only a few months away from one?

* As the UK market fell, FHB numbers also fell dramatically. In AU, through the current period of relatively small price falls, FHB numbers are increasing dramatically - boosted by government subsidy (grant boost etc), lowering interest rates, but clearly and most importantly, actual availability of credit!.

I know you made a point of it, but ~25% increase in FHB is still not a massive number of buyers. Remember, 25% increase on 20% is only another 5%. It is better than nothing, but properties under $500k and FHB's are not the entire market, as you would well know.

In fact, it seems they are only stimulus keeping the market alive. Post June 30th.. what happens then? Low interest rates are not the only factor now when buyers are considering taking on large debt.

Plenty of evidence amongst the housing investment forums, that lo-doc is near impossible to come by, and loans for "just one more" investment property are being refused. I wouldn't say it's anywhere near the free credit of 12 months ago, and likely to become worse as we actually enter recession.

* In the UK, the default rate has risen significantly in the past 12-18 months (though nowhere near the US level!). In AU, the default rate has fallen in the past 12 months.

Possibly, having the lowest rates since the 60's probably helps.. Although number of bankruptcy here are at the highest point since last recession, and we are not even *in* recession supposedly. Lot of other debt out there, other than simply mortgage debt, and credit card rates, personal loan rates, etc not coming down that much.

* In the UK there have been some serious bank failures/issues, bank runs etc (Black Rock, RBS), and talk of nationalisation of the entire sector to resolve the crisis. In AU our banks are still posting multi-billion $$ profits even as we write.

Bank runs and forced mergers locally were only *days away* back when all the overseas banks were collapsing late last year. There was only one thing that saved our banks from that situation, and that was the Government deposit guarantee coming in. All Australian's should thank their lucky stars, we were very very close to the US and UK situation with our banks.

IMO, all the evidence so far seems to suggest we have dodged the latter bullet, meaning our house prices are not going to crash - and as we come out the other side of the economic downturn they will continue to grow as they historically have. Although to be fair I don't think the rate of price growth will be as great as in the past 10-15 years - personally I am expecting 15-20 years before we see the next "doubling" of median prices, but with more differentiation between high growth and lower growth areas. I also expect rents/yields to move higher than the last 10-15 year average. Future inflation will be the major factor that could shift this time frame....

Some markets may hold up okay, but some are going to still get punished. Stats already show 10% falls for Melbourne, Perth and the Goldcoast, which is a large number when dealing with leverage. And that was only 2008.

Buying a PPOR is probably a great time with low rates, as you find what you like and you live in it, and appreciation is not so important.. but for investment the numbers don't seem to stack up in most areas without capital growth, and such ****ty yields of 4-6%. So prices either need to come down, or rents need to go up. Rent rises will continue, but during a recession cannot be endless. Investors are more likely to be the ones driving any future "boom", and it's just not there right now.

Apparently in the early 90's there was positive yield properties "everywhere" (not my words, but older investors), which probably led to the market holding up fairly well. But conditions then were not as now, it was not a worldwide credit crunch, where credit for possibly a decade will not be easy to come by as it once was.

Goldcoast on the precipice right now it seems. Maybe something will come along and pull it out, but at the moment, the rentals/number for sale, and those willing to purchase right now on the GC is slipping into a very dark place. Other areas throughout Australia like that as well, just on that edge... too many rentals, not enough demand, what happens? Most cannot afford to hold a property for months with *no return*

People putting places up for rental, simply as they cannot sell the property and are "hoping" for better times, not really by choice, is *not* the signs of a healthy market. This is happening in many suburbs in QLD.

 

[CamKawa]

Sorry to rain on the back patting permabull frenzy here but the ABS has just released the last building approval figures for December 2008. I'm afraid to say they aren't going up, but I'm sure a small detail like this won't hold a good permabull down.

Dec 07 to Dec 08 approvals fell -30.1%. Where are all the immigrants?

source: http://www.abs.gov.au/ausstats/abs@.nsf/mf/8731.0?OpenDocument

 

[knocker]

Sorry to rain on the back patting permabull frenzy here but the ABS has just released the last building approval figures for December 2008. I'm afraid to say they aren't going up, but I'm sure a small detail like this won't hold a good permabull down.

Dec 07 to Dec 08 approvals fell -30.1%. Where are all the immigrants?

source: http://www.abs.gov.au/ausstats/abs@.nsf/mf/8731.0?OpenDocument

Where are all the immigrants? You mean the "lets get rich quick crew"?
Well lets just say they have hard rubbish collection in my area, and I often see then foraging through other peoples refuse for rags and other odieties.

Too bad hey.

 

[Beej]

Buying a PPOR is probably a great time with low rates, as you find what you like and you live in it, and appreciation is not so important.. but for investment the numbers don't seem to stack up in most areas without capital growth, and such ****ty yields of 4-6%. So prices either need to come down, or rents need to go up. Rent rises will continue, but during a recession cannot be endless. Investors are more likely to be the ones driving any future "boom", and it's just not there right now.

I agree with you on these points. Due to the uncertainty late last year I sold my previous PPOR and one investment property, and combined the proceeds to buy a "better" PPOR. I'll be sitting tight on the PPOR front for a while now (hopefully 10-20 years!) and enjoy what we have, which is actually my wife's "dream house", in most respects (happy wife = happy life! ).

As far as further property investment goes, I'm still sitting on the side-lines for many of the reasons you state, but keeping close tabs on the market (for sale, prices, rents, vacancy) in areas I am interested in. My aim for any investment in the current environment would be to purchase in an exclusive/quality area, be cash-flow positive from day 1 and lock that in with a long term fixed interest rate.

Sorry to rain on the back patting permabull frenzy here but the ABS has just released the last building approval figures for December 2008. I'm afraid to say they aren't going up, but I'm sure a small detail like this won't hold a good permabull down.

Dec 07 to Dec 08 approvals fell -30.1%. Where are all the immigrants?

source: http://www.abs.gov.au/ausstats/abs@.nsf/mf/8731.0?OpenDocument

Why do think falling new dwelling approvals = falling prices?? Can't you see the seeds this is sewing re reduced housing supply into the future?

Oh and PS: Don't forget the government just announced they are going to build 20,000 new houses to help avoid a future housing crisis due to the drop off in new dwelling construction....

Beej

 

[knocker]

Why do think falling new dwelling approvals = falling prices?? Can't you see the seeds this is sewing re reduced housing supply into the future?

Oh and PS: Don't forget the government just announced they are going to build 20,000 new houses to help avoid a future housing crisis due to the drop off in new dwelling construction....

Beej

lol seem to recall in the great depression, the government made lots of roads. So what is your point dude? make more home for societies burdens?

 

[investorpaul]

Yes prawn, that is right, I admit it. I have just completed extensive research on property trend and economic links and have realised it's best to move to cash.

I have a high paying job and no debt after dumping this, but that's not the point. I don't want that debt risk any more when I will not get any capital growth for 5 years.

I intend to buy again but with 50% deposits.

If you dont mind what cities did your research cover and what were the key points you found?

I hold the view that property prices will drop at least 10%, maybe more. It is hard to say at this time due to the uncertainty in almost every sector of the economy. Your research may shed more light on that though?

I like a few others in here will be looking at buying a home in the next few years, but for now I am saving, trading and waiting.

 

[knocker]

If you dont mind what cities did your research cover and what were the key points you found?

I hold the view that property prices will drop at least 10%, maybe more. It is hard to say at this time due to the uncertainty in almost every sector of the economy. Your research may shed more light on that though?

I like a few others in here will be looking at buying a home in the next few years, but for now I am saving, trading and waiting.

Well good luck. If you are not already in property then not much prospect for some years if ever. But do not fret ok. As someone already pointed out, the government is going A over T to make sure everyone will have a home to live in ROFLMAO

 

[CamKawa]

Where are all the immigrants? You mean the "lets get rich quick crew"?

All the permabulls could say throughout 2008 was immigration this, immigration that... Looks like the days of becomming a millionare by ripping up the carpet and polishing the floor boards are over.

 

[Trevor_S]

Sorry to rain on the back patting permabull frenzy here but the ABS has just released the last building approval figures for December 2008. I'm afraid to say they aren't going up, but I'm sure a small detail like this won't hold a good permabull down.

Wouldn't that be bullish for residential property ? So few properties being built, many, many more will be needed, therefore supply goes down, prices go up ?

I hold the view that property prices will drop at least 10%, maybe more. It is hard to say at this

It's actually hard to even know what direction the property market is moving. The medians (even that is arguably not enough info to be indicative of housing prices as the median can be skewed for all sorts of reasons) produced seem to vary wildly, depending on who complies them.

As a bear, the more research I do the more I feel comfortable with beej's position and I have been bearish on property for 25 years, the returns never made sense to me Although I see no issue with waiting 12 months to confirm my views and then reassess if I was wrong. I have one IP I have owned since the late '90's and others that were sold 2, 4 and 6 years ago respectively, so I am not immune to investing in property, just wary of it.

 

[Dowdy]

You hear the news story where they are going to build a big apartment block somewhere for the homeless. It being developed with the Grollo's.

Well, all i can say is that it will probably be trashed within a few months and turned into a crack/***** house

 

[MR.]

I hold the view that property prices will drop at least 10%, maybe more.

If property drops by 10%
some 300,000 Australian home owners will have negative equity.